When you need business financing, whether to fill a short-term capital need or take the next big step toward growth, preparation is key. Laying the right groundwork can pay off when it’s time to qualify for a loan.
That’s where the right business habits come in. You can make a strong case for yourself by adopting practices and routines that show lenders you’re committed to paying back what you borrow.
Habits can take time to become concrete, so the sooner you get started, the better. If you’re planning to apply for business financing at some point, cultivating these habits now could make qualifying that much easier.
1. Monitor business credit regularly
One of the most important factors lenders look at when you apply for loans, lines of credit, and other business financing is your credit score. Business credit scores are a way for lenders to gauge how likely you are to repay loans and make your payments on time.
These scores aren’t set in stone, and they can change from month to month. Keeping an eye on your business credit is a good habit to develop so you’re not caught off guard by a credit score change when you’re all set to apply for a loan.
The easiest way to monitor business credit is to use a free credit monitoring service, such as NAV or Capital One’s Business CreditWise. As you review your credit each month, check to ensure that your account information, including payments, is accurate.
2. Become an early payer
Paying your expenses on time each month, whether that includes loan or business credit card payments or your overhead costs, is one of the best habits you can adopt if you want to qualify for a business loan. Not only can paying on time help boost your business credit score, but it can also help you get into a rhythm with your cash flow, reducing the odds of missing a payment or paying late.
You can take that practice one step further by getting into the habit of paying early each month. Paying early on loans or credit cards could help you trim a little money off what you’re paying in interest and finance charges if you’re reducing the principal. And you’re showing lenders that you’re committed to staying on top of your business cash flow.
3. Maintain solid vendor relationships
Your vendors may be one of your first sources of credit when your business is new. Vendor or supplier tradelines can allow you to get supplies if you’re not yet able to qualify for a business loan or line of credit.
When it comes to getting a loan, a habit of building good relationships with your vendors can work to your advantage in a couple of ways. First, vendor tradelines can be a building block for establishing business credit if those accounts are reported to the business credit bureaus. As a result, lenders have more than just your personal credit history to go on when weighing your creditworthiness for loans.
Second, a good vendor relationship can make managing your cash flow and keeping up with your financial obligations easier. If your vendor trusts you to pay, they may be willing to offer you more flexible payment terms or temporarily increase your credit line during busier seasons when you need to purchase more supplies or inventory.
4. Track business spending
Similar to how you manage your personal finances, you need a budget for your business finances. Knowing what you have coming in and going out each month is critical for creating accurate forecasts and projections for cash flow and revenues.
If you’re not in the habit of tracking your spending yet, it’s time to make it a priority. When you have a running tab of your expenses from month to month, it becomes much easier to budget. Not to mention, lenders will want to look at how you’re managing your finances every month.
There are two simple ways to track expenses. The first is to open a dedicated business bank account for depositing money and paying bills. The other is opening a business credit card for charging all business-related expenses. The upside of a credit card is that you can track spending while potentially earning some money-saving rewards for your business.
5. Audit your business finances regularly
Qualifying for business financing means you can’t afford to be out of touch with your business’s financial standing. If you’re not checking in with your budget and expenses or updating your financial statements regularly, then it’s easy to lose track of what’s going on financially within your business.
Creating a schedule for auditing your finances can help. For example, you should be checking your business receipts daily to ensure that transactions are recorded properly and there are no accounting discrepancies. Each month, you’ll want to review your budget and run various financial statements, such as an updated cash flow statement and a profit and loss statement.
You’ll want to check in with your business tax obligations at least quarterly and review your financial goals every six months or so. When you’re attuned to what’s happening with your financials, it becomes easier to identify areas you might need to work on to make your business a more attractive candidate for financing.
Automate to make your new business habits stick
Starting any new habit can take some time to get used to, and you can make it easier by automating as much as possible. For example, creating a bill payment schedule and automating those payments can help you get into the habit of paying early. Automating your accounting processes can make forecasting and reviewing your business finances less tedious.
Making your new habits as automatic as possible can help you increase the odds of a loan approval if you plan on borrowing in the future, and it will also help you build a strong business credit profile. At the same time, it leaves you free to focus on those important daily tasks that keep your business running smoothly.